Date
25 September 2017
Pu Yonghao (left) and Patrick Ho (right) of UBS are upbeat about the A-share market's prospects in the short term, but say the longer term outlook is hazy. Photo: EJ Insight
Pu Yonghao (left) and Patrick Ho (right) of UBS are upbeat about the A-share market's prospects in the short term, but say the longer term outlook is hazy. Photo: EJ Insight

China economic growth may slow to 6.8% in 2015: UBS

China’s economic growth may slow to 6.8 percent in 2015 amid more structural reforms and a weak property sector, UBS said on Wednesday.

“The government is carrying out a lot of reforms, including in state-owned enterprises… These are all positive, but they will not immediately resolve the many long-standing problems,” said Pu Yonghao, chief investment officer for Asia Pacific at UBS Wealth Management.

The problems include mounting local government debts, industry overcapacity, shadow banking, and bubbles in the property sector.

The government may lower the economic growth target to about 7.0 percent or even 6.8 percent, from this year’s goal of 7.5 percent, as China is still in the process of structural reform, Pu said.

Property sector weakness poses the biggest risk for the Chinese economy, the UBS official said, even as he noted that sales have improved in the past two months due to eased restrictions on the sector.

“Oversupply across the nation cannot be resolved in one or two months. It may take two to three years to digest the supply of housing units, especially in the third and fourth-tier cities where the oversupply situation is very serious,” Pu said.

The sales improvement seen recently was due to price cuts, as property developers aimed to get rid of inventory, he said. Overall, there are no incentives for fresh investment in the sector, he added.

In other comments, Pu said that UBS is upbeat about the short-term prospects of the A-share market. Margin financing should support the market, as well as funds flowing from the insurance sector and capital diverted from the property sector, he said.

The central bank may cut further the benchmark interest rate one or two times and reduce the reserve requirement ratio for commercial lenders, which should also boost the A-share market in the short term, Pu said.

But the medium and long-term outlook is hazy due to expected reforms in the market and lackluster performance of the real economy, the UBS official said.

“China wants to reform the A-share market so that it can offer an important channel for firms to get financing,” he said.

The reforms may however prompt a fund-raising rush, which could be negative for the markets, he said.

Patrick Ho, regional head of equities valuations at UBS, said the Hong Kong equity market is expected to rise merely 2 percent in the coming year, in line with the market performance in the Asia region.

Retail sales outlook has been clouded by the Occupy movement, he said.

Housing prices may drop as much as 10 percent to 15 percent due to factors such as expected rise in interest rates and increased supply, he said.

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JH/JP/RC

EJ Insight reporter

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